Assumption that big equals bad influenced Brazil's cotton decision

The notion of “big equals bad” influenced the findings of a three-person panel hearing Brazil's complaint against the United States cotton program, according to Bill Gillon, legal counsel for the National Cotton Council.

Gillon, speaking at a luncheon of the National Agri-Marketing Association, in Memphis, says his analysis of the 377-page decision “kept coming back to one thing. “Brazil had convinced this panel that big was bad. The United States was a big cotton producer, producing in the neighborhood of 20 percent of the world market in cotton.”

Meanwhile, “U.S. subsidy numbers, in terms of dollars spent, increased dramatically (during a portion of the applicable time period) as prices fell to very low levels. So we were spending a lot of money on this program.

“Essentially, this panel never got over these facts, no matter what legal analysis or legal construct the United States presented to the panel, it seemed it always found a way around it to get back to comparing dollars and that the United States is the big player in the market and must be guilty.”

This reasoning “skipped steps in the causation chain,” Gillon said. “I think this is going to be the centerpiece of the U.S. appeal.

“According to the panel, a U.S. agricultural subsidy program with benefits linked to price is suspect under the WTO,” Gillon said. “A subsidy can be determined to have caused objectionable impacts without a quantification of the impacts or the level of benefits that were bestowed. That is a fairly extraordinary statement, I think.

“The panel determined that the peace clause was no defense to U.S. cotton because the current cotton program exceeded the levels of 1992; that direct payments and production flexibility payments are not properly classified as Green Box; and that Step 2 payments and the export credit guarantee program are prohibited subsidies.”

The peace clause stated that no legal cases could be brought against farm subsidies until January 2004, as long as everyone kept subsidies at 1992 levels.

“The panel said that the marketing loan program plus the counter-cyclical program plus Step 2, have caused serious prejudice to Brazil and the world market. Their finding of serious prejudice was based on the finding of significant price suppression.

“They went along with Brazil's interpretation of price suppression — that price suppression could occur if prices were high or if prices were low, if these programs were causing world prices to be lower than they otherwise would have been. And they made a separate finding that it was significant.”

The panel did not use analyses submitted by the National Cotton Council, Brazil's economic expert, Dan Sumner, and others on the international price impact of the role of U.S. cotton programs. While Sumner found that U.S. subsidies affected international price by a double-digit percentage, “the majority of the studies indicated that the price impact was under five percent,” Gillon said.

Gillon noted that the decision has changed the way the world thinks about the WTO and world trade. “The U.S. Congress has learned that WTO agreements “can be turned on the United States. These agreements do have some teeth and they can come back to bite you.

“Many of the U.S. commodity groups now fully appreciate the importance of the panel's decision. It's a lot more involved than just cotton and there is a lot more at stake.”

The United States is also starting to discover that its view of the European Union and Japan as huge subsidizing countries is not shared by the rest of the world. “The rest of the world sees the United States and the European Union as the world's great agricultural subsidizers.”

Developing countries have also learned a lot, according to Gillon. “They've figured out that the Uruguay Round gave them leverage. Developing countries can win significant disputes by turning these agreements back on the United States.”

On the other hand, “very poor countries in the world are starting to realize that things really might not be changing for them at all. The stronger developing countries will probably just get stronger, and the poor countries of the world won't benefit if things play out in certain ways.”

Gillon says the biggest surprise for him was the “pre-orchestrated” public relations campaign launched against the U.S. cotton program.

“When I was in Cancun, I was amazed by one incident. I was walking to the convention center and I noticed a lot of people milling around.

“Shortly, a camera crew arrived, the lights went up and all of a sudden, the (protest) signs come up and they protested for 15 seconds. The lights went off and bam! they were gone. That made the news. The video clip looked like an army of protesters.

“From a public relation's perspective, this has got to be one of the most fascinating tales that isn't being told very well. And what's next? There's always been a new curve that the major players have not anticipated.”